Rendell Company Case

Table of Contents

Executive Summary 2

1. Case Context 2

2. Problem Definition 2

3. Framework for Analysis and Areas of Consideration 2

4. Analysis: Discussions of Important Steps and Considerations 3

5. Decision 5

6. Basic Justifications for Decisions 6

7. Operationalization of Decisions 8

Appendix 9

Executive Summary

Our analysis and decisions on this case study, establish the appropriate organizational structure and the necessary controls that must be implemented within Rendell Company, in order to remedy the inactive role and limited power of corporate controller over his division controllers. The roles of corporate controller and division controllers are discussed in great detail as well as the advantages and disadvantages of adopting another company's (Martex Co.) method. Eventually, after weighing the pros and cons, we concluded that adopting Martex system is the most feasible solution to the issue at hand because it will lessen the difficulties of implementing modern controls that will alleviate bloated budgets, without much impact on the existing corporate culture.

1. Case Context

Rendell Company has seven operating divisions which manufacture and market distinct product line. A controller is assigned to every division and each of them reports directly to the division manager.

Mr. Bevins, the corporate controller, wanted to implement modern control measures to remove fats from budgets directly submitted to top management group. These budgets have little analysis from the corporate control organization because of the current organizational structure. The assigned division controller's primary loyalty is to his division manager and not to the corporate controller that it is difficult to acquire unbiased report.

In this regard, Mr. Bevins is contemplating on adopting the organizational structure and system of Martex Co. hoping that such move will solve the issues.

2. Problem Definition

The case opens to several issues which need to be answered to fully understand the case:

Mr. Fred Bevin is not satisfied with the current situation of their organizational structure. He was considering which organizational relationship is appropriate for Rendell Company. Is the controller relationship of Martex better than that of Rendell's current organizational relationship?

The goals and interests of the corporate controller are not congruent with the divisional controllers. The roles and responsibilities were not clearly defined. How should Rendell resolve the current reporting relationship to achieve goal congruence?

Would the proposed change in the structure cause a dramatic impact on the current corporate culture? Will it have the support of top management?

3. Framework for Analysis and Areas of Consideration

The following areas must be taken into consideration in discussing the case:

* The company's objective is to achieve profit and growth. Assess whether the goals are congruent within the organization and if it supports the company's main objective.

* Evaluate the current set up of the organization. Describe its strength and weaknesses.

* Cross examine the current set up with the proposed set up and evaluate compatibility to the organization. Analyze whether the new system would fit well to the organization.

* Define the roles and function of the corporate controller and the divisional controllers

* Apply the best alternative aligned with company objective and organizational set-up

* Provide recommendations on how to promote goal congruence

4. Analysis: Discussions of Important Steps and Considerations

a. Goal Congruence in the Organization

Rendell Company

The goals of the division manager are not aligned with the goals of the corporate controller. The corporate controller's goals are in line with those of the organization, as a whole, that is to achieve profitability and growth. His strategy, therefore, would include the minimization of costs, as allocated in the annual budget. However, the budgeted costs are largely dependent on the inputs of the divisional controllers, who report directly to the division managers. Division managers are concerned specifically on the favorable performance of their own units. To be able to achieve an ideal performance, the managers would prefer higher budget allocations for their units to have sort of a "buffer" for possible losses or costs increases. In such way, the divisions' performance would always appear positive and within the budgeted costs, making the division managers appear effective and efficient. Most of the time, the figures presented by the division controllers are being questioned by the corporate controller, which the division controllers justify to the highest extend they could. Loyalty is directed towards the division itself and its manager rather than the organization.

Martex Company

Goal congruence is more prominent in the Martex Company, where division controllers are under the control of the corporate controller. Such organization structure enables the division controllers to visualize the goals of the whole organization. Most often, both the corporate and the division controllers see eye to eye when it comes to cost control and profitability objective of the company.

b. Controllership Structure

Rendell Company

The company follows a business unit organizational structure composed of seven divisions where each unit is headed by its own division manager and assisted by his division controller. These divisions though may be checked upon by corporate officers on a regular basis, are not directly under their control which signifies broken lines in the organizational